Saturday, October 12, 2013

THE SHUTDOWN IN WASHINGTON AND ITS IMPACT ON TRADE POLICY

Here we are in week two of the federal government shutdown. As we write this, there are at least some rumblings of a possible deal between the White House and Congressional Republicans to reopen the government avoid defaulting on the US debt. But it’s too soon to tell if a resolution is really in sight.Even if this all ends soon, damage has already been done.A prolonged shutdown threatens to cripple the US trade agenda and raise serious concerns among our trading partners that the relationship between President Obama and Congress is so dysfunctional that Washington will not be able to deliver on any of the commitments it makes in trade negotiations. And that’s according to President Obama, who told reporters earlier this week that his absence from a meeting of the TransPacific Partnership leaders in Bali because of the shutdown didn’t help the negotiations move forward. The President missed both the TPP meeting and the larger gathering of Asia-Pacific Economic Cooperation forum leaders. And that may have cost the United States. Mr. Obama likened it to being a businessman who is unable to get to a face-to-face meeting with a prospective client and so fails to close a big deal.If the stalemate continues, it wouldn’t be at all surprising if the other 11 countries involved in the TransPacific Partnership negotiations and the US partner in the Transatlantic Trade and Investment Partnership negotiations – the European Union – will question whether they really can depend on the Obama Administration working with Congress to get Trade Promotion Authority so that when these FTAs are completed, they could not be torn apart by lawmakers.The TPP and TTIP – the two cornerstones of President Obama’s much-touted second term trade agenda – have already fallen victim to the shutdown.A large team of US negotiators were supposed to be in Brussels this week for the second round of TTIP talks – when the two sides were expected to really get down to work for the first time. But Washington had to cancel at the last minute because it couldn’t send negotiators and support staff – many furloughed – to the meeting.TPP talks went ahead last week and this week in Bali because many of the staff were in Bali before the shutdown – but President Obama did not show up. He was absent from the long-awaited TPP leaders meeting that was held on the sidelines of the Asia-Pacific Economic Cooperation forum. The meeting went ahead without him – Secretary of State John Kerry filled in. But the President’s absence may have come at a cost. According to Kyodo news service, Washington had wanted the TPP leaders statement so say that work was “substantively finished” – a phrase that would have sent a strong signal the talks are nearing completion. But with President Obama – who was supposed to chair the meeting – absent, the remaining 11 leaders opted for watered-down “significant progress” language.The TPP leaders stuck to their goal of completing the deal by the end of the year. But there was no mention of when negotiators or trade ministers would reconvene. Assuming nothing can be scheduled until the federal government is back at work, that year-end goal could be seriously compromised. That means the TPP – and any hope of getting Trade Promotion Authority – will slip into an election year, when it would be even more difficult to get any kind of bipartisan support.But it’s not only the big ticket FTAs that are at risk. The day-to-day US government functions to promote exports, defend US businesses against unfair trade practices, keep unsafe and counterfeits imports out of the market and maintain economic sanctions on Iran have largely ground to a halt. The Commerce Department was not even able to release its latest monthly data on the US trade balance this week – let alone help potential US exporters find customers overseas.Another several high-level US trade officials – actually working at their desks – cancelled out on several trade-related business events. This is the week that Washington hosts the annual joint meetings of the World Bank and International Monetary Fund.But Treasury Secretary Jack Lew snuck out of his office to testify before the Senate Finance Committee. He pointed out that the shutdown, looming default and President Obama’s absence from APEC left a gapping hole that China has been quick to try to fill. Chinese officials ran around Bali touting Beijing as a more reliable economic partner than the United States. And the possibility of default gives China and other countries like Brazil ammunition in their ongoing efforts to shoot down the dollar from its current perch as the world’s reserve currency.